Keeping Britain Moving
Smart ideas for cutting infrastructure costs
March 2011 | by Robert Emmerich
Good transport infrastructure underpins economic growth. The United Kingdom’s strategic roads, railways and airports1 are, however, some of the most congested in the world. On average, for each kilometre of motorway 113 million passenger vehicle kilometres are driven nationally each year, against 47 million in Germany, 39 million in France and 36 million in the United States. In addition, the UK’s roads carry more freight per kilometre of motorway than any other major economy apart from Japan. The railways are carrying more passengers than at any time in the past 60 years, on a network roughly three-fifths of its size in 1950. Meanwhile, most major UK airports compare poorly with their international counterparts, although recent upgrades have improved facilities. The 2010 Skytrax survey, for example, ranks Heathrow 21st out of 163 airports worldwide for the quality of its infrastructure (up from 57th in 2009), Gatwick 64th and Stansted 99th.
Demand will also increase significantly. By 2030, the average UK resident is expected to drive an extra 1,100 kilometres a year, increase use of long-distance trains and take one more flight than he or she does at the moment. The combined effects of population growth and increased travel over the next two decades, other things being equal, will be to increase passenger numbers on the roads by almost 30 percent, rail travel by 50 percent and the number of flights originating in the United Kingdom by as much as 75 percent.
So, as the nation works to strengthen its economy and finances, it faces a period of unprecedented investment to maintain and enhance the quality of its transport assets. We estimate that the costof maintaining, renewing and expanding the United Kingdom’s transport infrastructure will be around£350 billion over the next two decades – a 45 percent increase on average annual spending since theturn of the 21st century.
The government’s recent Comprehensive Spending Review and National Infrastructure Plan acknowledge the scale of transport infrastructure needs. Both emphasize the importance of investment in economic infrastructure to promote growth. Cuts to transport infrastructure funding contained in the CSR are much lower than many had expected. Even so, the UK government is likely to spend 18 percent less on transport infrastructure over the next five years than it did over the previous five. And, taking a medium-term view, we estimate that there will be a substantial public-sector funding gap for road and rail of around £100 billion between 2010 and 2030, the equivalent of £5 billion a year.
The United Kingdom needs to close this gap. We see two options for achieving this, without increasing general taxation. The builders and operators of our transport infrastructure can further improve their productivity; and the users of our transport assets – vehicle owners in particular – can contribute more. We recognise that both these options are challenging for a range of reasons: it is for politicians to judge which alternative is most acceptable.
The United Kingdom has significantly improved construction and maintenance productivity for transport assets in recent years. Between 1998 and 2005, construction productivity increased by 1.7 percent a year compared with 0.3 percent in Germany and 0.1 percent in Spain. However, as HM Treasury’s recent Infrastructure Cost Review made clear, there is still considerable room to do better. We estimate that construction and maintenance costs for UK transport assets could fall by up to 16 percent, on top of the efficiency savings already targeted. This is equivalent to maintaining the recent rate of productivity growth for the next two decades. Doing so would eliminate the funding gap in rail and reduce the shortfall in road expenditure to around £55 billion.
The difference could be made up by boosting revenues from road users to a level similar to that in other parts of Europe. In the United Kingdom, road users pay, in total, around 6 pence to use a kilometre of road. This is between 10 and 25 percent less than drivers in France, Germany and Switzerland. In the long term, road pricing may well be the best mechanism for collecting this revenue – and for replacing some of the £26 billion of fuel duty that will be lost if, as expected, electric cars start to become more commonplace. But, in the short term, increasing fuel or vehicle duty may be a quicker, more cost-effective and less risky way to close the funding gap. Persuading road users of the benefits of paying more will be a challenge whichever route is chosen.